EUR/USD Looks Hopeful For A Dovish Hike

  • EUR/USD trades on slightly higher ground as the Fed is awaited.
  • Current pricing implies a dovish hike, and it may be misguided.
  • The technical picture is marginally bullish for the pair.

EUR/USD is trading close to 1.1400, below the one-week highs it reached on Tuesday but in a fairly narrow range. The central event of the week is due today: the final act of the Federal Reserve for 2018.

The Fed is widely expected to raise the interest rate, completing four hikes this year. However, given clear signs of an economic slowdown across the world, some jitters in the US, and several dovish Fed statements, markets expect a downgrade of the projections for 2019. The recent interest rate projections from September point to three increases next year, but it would only take two FOMC members to change their minds to have an outlook for two hikes.

However, bond markets are not seeing any increase and the recent slide of the US Dollar against its major peers in last days implies growing expectations for a dovish move, perhaps not only in the dot-plot but also in the accompanying statement and Chair Jerome Powell’s press conference. US President Donald Trump upped the rhetoric against a rate hike in the past few days. This may backfire as central bankers closely guard their independence.

Will the Fed announce a not-so-dovish hike and send the USD higher? 

EUR/USD is expected to remain in a tight range ahead of the all-important event that begins at 19:00 GMT.

In a report published on Tuesday, US Building Permits and Housing Starts both beat expectations. Another housing data is due ahead of the Fed: Existing Home Sales, which have been worrying of late.

In the old continent, the Italian government released its modified budget which predicts a deficit of just over 2%, very close to the European Commission’s demands. Will it satisfy Brussels? The process is out of the spotlight but may return if the EC rejects it once again.

On Tuesday we learned that the German IFO Business Climate fell to 101 points, a significant disappointment proving that the continent’s No. 1 economy issues were not a one-off in Q3.

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